When the offer on your home is accepted, you’ll start the process of securing the mortgage for your home. Lenders will give you the option to lock or float your mortgage rate prior to closing (which typically happens 30 days after the offer is accepted).
“Locking” your mortgage means that you and your lender have agreed on an interest rate and price for your home loan. Once your loan is locked, that’s the rate and price you get, regardless of what happens in the financial markets. If rates go up, you’re protected; but if rates go down, you won’t benefit either — you close your loan at the rate you’ve locked and you can’t change it. Locks have expiration dates ranging from 30 to 60 days or more, and the longer your lock period, the more it costs. If you don’t close your loan on time, you could end up paying a higher interest rate.
Every day, LendingTree posts our recommendation (below) on whether you should lock or float your rate, so make sure to check back here prior to making your decision.
It looks as if mortgage rates might rise today. However, that prediction is based on early market trends, and those frequently change speed or direction during the day, so a holding steady or fall remain possible. Still, we’d lock our rate now if we were currently buying a home.
However, you might just think about adopting a longer Float strategy regardless of daily fluctuations if you have some weeks to go before you must lock. That’s because some believe there’s a chance of a more sustained market correction ahead, though that’s far from a certain bet, and any such correction looks unlikely to see a return to pre-election conditions. What you choose to do will be largely down to your personal tolerance for risk.
If you do decide to float, it’s often a good idea to set an upper limit on the rate you’re comfortable paying, and to resolve to lock and cut your losses when that limit is reached. Use the LendingTree mortgage calculator to model how rate changes affect your monthly payments. Setting a cap may help you avoid a more destructive upward spiral. Either way, the current volatility and unpredictability in markets means there’s risk in doing anything – including nothing.
Speaking of volatility, we’re now in the holiday season, and that sometimes creates its own surprises and sharp swings. With fewer and often less experienced investment managers and traders in offices on Wall Street and around the world, those left behind can overreact to events and create even more wild movements in markets than usual. While that might create some gains in the form of lower mortgage rates, it’s at least as likely to create losses through higher ones. It could also make our daily predictions of mortgage rates less reliable. So lock or buckle up.
Once again, no “market moving indicators” (releases of important domestic economic data) were published this morning. The U.S. Treasury is auctioning 4-week bills today, but such short-term instruments rarely affect mortgage rates. No Federal Reserve officials have speaking engagements later. So it may be that any changes in key markets will be driven by foreign news and general market sentiment.
By approaching 10:00am ET, yields on 10-year U.S. Treasury bonds, which are usually closely tied to mortgage rates, were higher. While those yield trends on those bonds at that time of the morning frequently turn out to be accurate predictors of the direction of travel for the day’s mortgage rates, they slow, accelerate or reverse sufficiently often that they can’t be relied upon as a basis for making important financial decisions. And in any event, the relationship between those and mortgage rates can sometimes become elastic.
Earlier, major foreign stock-market indexes were higher everywhere across Asia and Europe except in China and Hong Kong. Twenty minutes after opening, the Dow Jones industrial average was up +0.51 percent. At 9:42am ET, crude oil prices stood at $52.62/barrel, compared with the $51.71/barrel seen at 9:44am ET yesterday.
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